Supplier Diversity is Necessary for Business Growth and Security
The past few years have been difficult and trying for Toyota Motor Corporation. In 2009-10, there were reports of errors in vehicles causing fatal accidents. Then, as they were beginning to recover from this, Japan was hit by an earthquake and a massive tidal wave. Plants in northern Japan were hurt and suddenly, Toyota’s supply of 500 different parts needed for their cars was disrupted. While Toyota reacted quickly and was able to recover from these problems, they lost out on about 800,000 units of production–10% of their total yearly output.
The moral of the above story is that, while Toyota was building an incredible company and doing great business, they were also walking a fine line with their growth and security on one side, but total ruin on the other. They were fortunate to get out of these problems, but other companies have not always fared so well.
One of the big reasons that so many companies have a hard time recovering from situations like this is because of a lack of supplier diversity. Week in and week out, they go back to the same suppliers for the same goods and services. What happens if an earthquake hits and shuts that supplier down for three months? Or, what if the economy gets so bad that a company shuts their doors? How do you survive?
On IBM’s page about supplier diversity, they believe that “a diverse supplier base is integral to company profitability and strategic objectives–solidifying the connection between customer satisfaction and winning in the marketplace.”
They are completely correct in this opinion. By having such a diverse supplier base, they are able to get the best prices for their goods, but also be strategically sound so that if a natural disaster hits, the supply chain doesn’t halt. With the economy in recovery mode, factories are trying to ramp up production; a halted supply chain is catastrophic to a business.
But, the fear factor is not the only reason why supplier diversity is so important. Another aspect of supplier diversity is to build your business’ reputation as a diverse purchaser. For example, there are businesses that are specifically owned by minorities, women and GLBT persons. The rules for these are as followed:
- Minority owned businesses must be at least 51% owned/operated by one or more of the following ethnic groups: Black, Asian American, Hispanic and Native (Native Hawaiians and Eskimo are included). Another way that a business is classified as minority owned is when a company is controlled by at least 30% of its voting stock by the above group.
- A woman owned business is only classified as such if 51% or more of ownership is handled by a woman.
- GLBT owned businesses are those businesses that are owned with a 51% majority by one or more gay, lesbian, bisexual or transgendered individuals.
The National Minority Supplier Development Council (NMSDC), Women’s Business Enterprise National Council (WBENC) and the National Gay and Lesbian Chamber of Commerce (NGLCC) are three organizations that give certification to these business.
A routine problem in supplier diversity is the discovery side of things. How exactly can you find these different businesses?
One option is to use purchasing software. These tools list all different sorts of companies and their products, which can make it easy to find the products. Another option is to check out platforms such as ThomasNet. For example, if you were looking for pumps and valves, you might search for that on ThomasNet. You’d be presented with a list of companies, such as Lee Supply, where you’d be presented with information about the company, whether they have any of the above certifications and other important information.
The important thing to keep in mind is that supplier diversity ensures that your company is always getting the goods it needs to survive. Every part of the supply chain, whether it’s the car coming out of the factory or the bolt to hold a piece in place, has a part of the supply chain coming before it. Therefore, every business’ success is at the whim of those that supply it. To minimize how much those business’ dictate your growth, diversify your supplier pool.